Common tax deductions for business owners

Tax deductions are the amount of money that you can exclude from your taxable income. You should take the cost of the expense and deduct it from the taxable profits. Tax write-offs effectively cause you to pay a lower tax bill. However, the fee must follow IRS requirements for a tax deduction. 

For small businesses, claiming legal deductions is an effective income tax technique. It is essential to know which are the tax reductions each year before preparing your tax return. 

It can be challenging to recognize which deductions apply to you as a small business owner. Some people don’t remember their expenses and miss writing it off as a tax, which loses out on tax savings. To prevent this, you should keep accurate bookkeeping monthly. 

There are two ways to claim tax deductions, itemize your deductions or take the standard deduction. The second one is the easy option, and your taxable income is reduced automatically based on how you file. For itemized deductions, you will need to make a compilation of all the deductions you intend to use one by one.

As a small business owner, you could account for a combination of recurring and one-time expenses. Rent, electricity, inventory, and payroll are only a few of the outbound expenses that can quickly pile up month after month.

Many tax deductions may be helpful for you. However, determining which ones are right for your business is the tricky part. Here is the list of tax deductions for small business owners in 2021. 

Business meals 

Employee and corporate meals for business might be deducted from the taxes. It will depend on the meal’s intent and who profits from it to determine whether or not a transaction is eligible.

In most cases, you can subtract 50% of eligible food and beverage expenses. Employee and corporate meals for business can be deducted from the taxes. It will depend on the meal’s intent and who profits from it to determine whether or not a transaction is eligible. It also must meet the following criteria:

  • The cost must be a natural and essential part of operating your business.
  • The food cannot be luxurious or expensive.
  • At the meal, the company owner or an employee must be present.

It is important to keep documentation that includes each expense, the date and place of the meal, and the relationship between the person he/she dined with and the business owner and

Advertising and promotion

For the IRS, the expenses used for marketing or advertising in a small business qualify as 100% deductible from your tax report. The expenses can include:

  • Hiring someone to design your website.
  • The cost of printing business cards.
  • Running a Facebook or Linkedin campaign.
  • Sponsoring an event.

In general, any advertising expenses to acquire or attract clients can be considered eligible.

Business Insurance 

If your business insurance is both ordinary and essential to your company’s service, it will be fully deductible from your tax report. Some of the insurance that can count for this tax deduction are data breach insurance, worker’s compensation insurance, commercial real estate insurance, professional liability insurance, and general liability insurance. 

Business use of your car 

If you use your vehicle only to run your business, it can deduct the operating vehicle’s cost. In case you use it for personal matters and for running your business, you can only deduct the amount used for business purposes. 

You have two ways to deduct vehicle expenses:

Standard mileage rate is when you multiply the miles driven during a year by a standard mileage rate. From January 2020, the standard mileage rate changed to 57.5 per mile. 

In this case, in the Actual expense method, you should keep records of all car expenditures for the year, including petrol, diesel, maintenance, tires, taxes, license fees, and leasing payments. Multiply all costs by the number of business miles traveled.

Depreciation 

When you purchase equipment, furniture, or other tangible assets, you should spread the costs over time, basically for all the years that you are going to use it instead of deducting the total cost in one year. 

Small business owners may use this tax write-off to determine an asset’s worth over time by considering its age, wear, and deterioration.

Education 

If the expenses used for education will add value to the business, they can be deducted from your tax report. Continuing training and workshops intended to support employees with specialized technical licenses are all forms of tax-deductible education expenditures.

Examples of education deductions:

  • Seminars and webinars
  • Workshops
  • Subscriptions to relevant professional publications
  • Classes to improve skills 

Legal expenses

When legal fees are considered necessary and ordinary to the business can count as deductible taxes. These include fees billed by lawyers, accountants, bookkeepers or online bookkeeping services, and tax preparers. 

Rent expense

Whether you rent a place or facilities for your business, you can subtract the leasing fees as a business cost from your tax report. It is essential to know that the property should be used for business purposes. In case you eventually receive a title to the property, rent expenses will not be considered deductible. If, on the other hand, you use a home office, you might be eligible to write off a portion of the cost. 

Telephone and internet expenses 

Telephone and internet access will be deducted as company costs if they are relevant for running your business. Keep in mind that if you use the internet or phone for personal purposes, you can only deduct the cost used to run your business. 

Salaries and benefits 

In their company tax forms, small business owners with jobs will exclude their employees’ wages, insurance, and holiday pay. Daily salaries, commissions, and incentives are also included. The salaries and other benefits must have been paid in the year the taxpayer claims the deduction. 

Travel expenses

A trip must be regular, required, and away from your tax home to count as business travel. What it counts as expenses deduction:

  • Airplane, train, or bus ticket costs
  • Parking and toll fees
  • Taxis and other modes of transportation
  • Meals and lodging 

 

Office supplies and expenses

 

Office supplies are needed for the management and maintenance of a working office are entirely tax-deductible. The IRS has three main guidelines for determining whether or not an office supply is tax-deductible:

  • The taxpayer is not required to keep track of when the materials are used.
  • The taxpayer must not inventory the materials.
  • The final profits of the company must not be skewed as a result of these deductions.

Tax deductions are an effective way to lower the amount of tax you owe, and maintaining proper records would guarantee that you retain those deductions if the IRS comes calling. 

If you need help filling out your taxes, feel free to contact us. 

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